Mortgage Specialist Toronto Advice: Biweekly Mortgage Payments

What is a biweekly Mortgage?

Most of the top performing mortgage specialist Toronto today would encourage their clients to take on instead a biweekly mortgage payment in order for them to complete their payment obligations to it fast. And this seems to be the fad today. But does it really work and most importantly is it beneficial to a homebuyer who is planning to acquire a house soon?

A biweekly mortgage payment is a commitment from the part of the homebuyer to make one-half payment for his mortgage every two weeks as opposed to making a “full payment” in a month. And instead of the usual 12 payments per annum, the homeowner would have made 13 payments overall. This payment scheme recommended by most top performing mortgage brokers in Toronto is beneficial to a homeowner in such a way that they are able to accelerate their payoff schedule by as much as 7 years.

Doing 12 Payments In a Year

In a typical mortgage program, a homeowner is necessitated to commit to making monthly regular payments. This will render him to complete 12 payments in a year, provided he is faithfully committed to making his monthly payment obligation. He would need to make a total of 360 payments to complete full payment on the loan, that is if he opted for a 30 year fixed rate mortgage term.

All payments you make will be divided into two parts, one part is for the interest portion and another part of the principal portion. The amount of money allocated for the principal portion will go to the loan that you have with, say a bank. It will significantly reduce the amount of your loan balance.

The remaining principal and interest balance on your mortgage payment will shift as your loan gradually moves closer and closer towards its maturity. There was a time before when a huge percentage of the mortgage payment is allotted mainly for the interest while the remaining portion would be used to settle the balance.

Unknown to many of us, this explains the reason why even after 5 or 6 years or so of making payment for your mortgage, it remains barely paid up. Technically speaking, this schedule format is responsible for that. The major repayment is referred to as the amortization.

Biweekly Schedule: Doing 13 Counts of Payment in a Year

The primary intention why a biweekly mortgage program came into being is to cut short a homeowner’s amortization schedule. As opposed to the usual 12 payments in a year for a mortgage, the biweekly mortgage program requires a homeowner to make 13 payments instead. And it is done by observing and keeping a fortnightly payment schedule, hence the name.

A certain amount of interest will have to be paid on a yearly basis when using a biweekly mortgage plan. Usually, it is covered in the first 12 months of payment made. And as for the 13th month, it will have to go somewhere. Even though it will be applied to your remaining principal, which is the amount of money that you still owe to the banking institution.

With the prevailing mortgage rates that we have today, loan borrowers can easily shorten their loan amounts by as much as 4 years if they will opt to have a biweekly mortgage payment plan.

Is Biweekly Mortgage Program Suitable for You, too?

If you do the basic math, the computation about it, you will easily understand that biweekly mortgage will work and definitely does not hold empty promises to borrowers. But there are several few reasons why homeowners may hold themselves back from availing themselves a biweekly mortgage plan.

One of the most common reasons why homebuyers opt not to enroll themselves in a biweekly mortgage plan offered by, say, a banking institution, and to have a self-managed biweekly mortgage payment instead is because they know that they will get far better results as opposed to a bank-managed biweekly mortgage payment schedule.

To give you an idea how you can go about in doing a self-manage of your biweekly mortgage payment, you can start by just going about your regular monthly mortgage payment first, but try adding an extra 1/12 of the amount of your regular monthly mortgage payment. Say for instance that you are making at least $1200 monthly mortgage payment. So what you will do on your next cycle is to add $100 more to your payment, thus, making it $1300, At the end of each year, or at the lapse of the 12th month after,you would have made a month of an over payment which is considered your 13th payment month.Banks will not apply your 13th-month pay until such time that the year is complete already. This will go in contrast to your own self-managed biweekly mortgage payment which applies 12 times annually.

You are still bound to get the very same results, though, when you opt for a self-managed biweekly mortgage payment but with the complete absence of a financial obligation to, say, a bank. For better understanding, let us say for instance that the Christmas holidays are coming soon and you want to deliberately skip making an extra payment for your mortgage for the months of November and December, then you can do so simply because you are not bound by a contract. Then, maybe a few months after, when your finances are back on track again you may double-up the payments you are making so as to cover the extra payments that you’ve skipped.

If you are still in doubt that a bank managed biweekly mortgage plan is bringing along a lot of risks to you as the loan borrower, you may want to verify from your lender if they have any charges for you when you are opting to apply for a biweekly mortgage plan with them. There are a number of banking institutions that does this, and that definitely is going to be a waste of your money since it has no return benefits to you in the end.

Should your bank or private lender proactively offered you a biweekly mortgage plan, you can just simply decline that offer for good. You are doing yourself a favor that way. I highly recommend that you initiate a biweekly payment of your mortgage on your own.

Why I Would Discourage You from Biweekly Mortgage

The main purpose of a biweekly mortgage program is to help redeem you from your loaned amount and to get you closer to your loan’s paid off date. In short, it is designed to help you bypass the drudgery of paying your loan in a long term by increasing your frequency of payment schedule. Hence, it provides significant help in building up your equity.

Although biweekly mortgage, by its design, structure, and purpose, is good and intended to benefit the homeowner or the loan borrower but it seems to serve this purpose only when it is not managed or under the shadow of your bank or private lender. Changes on it are bound to happen in the absence of a contract.

Now exactly, what do I mean by this?

If you have an existing property loan and expressed your desire to have it set up for a biweekly mortgage instead, your bank or private lender may have you pay the set fee for that particular conversion. Furthermore, your bank may also even charge you for the automatic transfer of funds twice a month from your savings or checking account with them. All I mean is why would you settle for this kind of biweekly mortgage set up from your bank when you can do it on your own, without any fees.

Another disadvantage when signing up for a biweekly mortgage with a bank or private lender is that you are obligated to pay up every other week. You are not allowed to skip since you are under a contract. If you do, you run the risk of getting penalized by them or you will be charged an extra fee for skipping a payment whereas if you are just doing your biweekly payments on your own initiative, you may skip once or twice if you need to use the funds somewhere else and would not have to worry about anything. Then, after some time, you can pay for the skipped months so you will still have completed 13 months at the lapse of 1 year for your mortgage. Should you require more information about biweekly mortgage, you may consult your trusted mortgage specialist Toronto for this.